FEEM Seminar “Policy Uncertainty and Investment in Low-Carbon Technology”
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In the context of an emission trading scheme, the authors study how uncertainty over the environmental policy affects firms’ investment in low-carbon technologies. They develop a three period sequential model that encompasses both irreversible and reversible investment possibilities for the firms. They also explicitly model the policy uncertainty in the regulator’s objective function as well as the market interactions that give rise to an endogenous price of permits.